What is the market yield on a firm's debt if the marginal tax rate is 25%...
What is the market yield on a firm's debt if the marginal tax rate is 25% and the after-tax cost of debt is 15%?
| a. |
20% |
|
| b. |
15% |
|
| c. |
10% |
|
| d. |
25% |
|
| e. |
30% |
Homework Answers
a. 20%
| Before tax cost of debt | = | After tax cost of debt/(1-Tax rate) | ||
| = | 15%/(1-0.25) | |||
| = | 20% | |||
| So, | ||||
| Market yield on firm's debt is 20% | ||||
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